Social disclosure in annual reports of Islamic Banks: the case of Malaysia

Abstract

Social responsibility is synonymous to the Islamic view on maslahah ummah (public interest). Islamic values and principles which are based on the Holy Quran, the teachings of Prophet Muhammad (PBUH) and the interpretation of Islamic jurists may serve as the foundation for social responsibility. Previous studies have shown that the disclosure level of social responsibility by financial institutions that claimed themselves as companies operated based on Shari ·ah are however less than expected. In this study, a prescriptive benchmark for high-quality social disclosure that has been developed by previous researchers is employed where the banks will be graded based on their disclosure level. The aim of this study is to examine the disclosure practice of the sample Islamic banks operating in Malaysia based on their annual reports. From a total of 17 Islamic banks in Malaysia, 12 banks served as sample for this study. The reason being, the remaining five banks just started their operations in late 2008 or early 2009 therefore are not eligible to serve as sample since this study is conducted using 2008 annual repmis. The main implication of this study is to increase the awareness level of Islamic banks regarding the compliance and disclosure requirement to satisfy users of the annual repo1is especially those who are using the financial statement to make their religious decision or ethical consideration. Findings show that seven out of twelve Islamic banks analyzed to be above average. However, most lslamic banks still put little effort in tem1s of disclosing their social values in the annual repmi. Some banks communicate in an ambiguous style, which can have big implications on the image and reputation of the banks. Therefore, in order to remain competitive and strengthen their reputation, the level of social disclosure of Islamic banks should be improved to reach the satisfactory level.